Wednesday, December 21, 2011

Is vol oversold? We went from a 30 vol world to almost teens in two weeks? Start long averaging into upside vol now.

Is vol oversold?  We went from a 30 vol world to almost teens in two weeks (Index down 1%, VIX down 30%)? Start long averaging into upside vol now.

What sort of investing world are we living in?  In our last post, we made it clear that a rally would be violent and short lived if no real risk on trades were being put to work.  In fact, this rally has seen people nibbling a touch on risky duration, but nothing to explain the massive sell-off in vol and term structure shift.  We get the whole holiday thing, but what happens after?  From the below themes, we don’t see anything that makes us feel that the future environment will be rosy and vol will go to 15 (where you can buy upside baby calls right now)

Common Themes in the market

1) Santa Rally - BULL
2) Massive sell off in first quarter - BEAR
3) Second half of 2012, we are off to the races - BULL
4) ECB will just print and no one cares about the Italian 10y anymore - BULL
5) Everything is TBTF - BULL
6) Election year, Republicans will stall, toss economy downward to get Obama and his Volcker rule out- Election headlines will dominate as financials will rally with Mitt leadership as will Oil as US prepares for war with Iran - BULL/BEAR
7) “We don’t care what happens, we are happy getting our dividends from Utility stocks” - BLIND
8) Gold is cheap - BEAR
9) Short correlation, turn off computer, come back in Jan 2013 and turn on. - BULL
10) “Buy the dips” - RETAIL
11) “Do what feels wrong” - STUPID
12) China is a fraud and will implode - BEAR
13) Euro Fails, Defaults, we get the whale event that will end the circular reference - BEAR
14) PM’s are underweight, want to mark up stocks, need to buy - SAME AS 1, 10 and 11

1.  SPX Var Swaps 12M- 1M

We are at record steepness for the year.  We are going to play this by via cheap Jan VIX Iron Condors, buying SPY Jan 130 and 135 strikes for sticky vol play, selling 2 and 3year 1 by 2 put spreads.

2) 30’s to teens in two weeks?

3) VIX/GOLD/Market

Our vol buy signal is flashing at 6 to start entering.

4) The best for last

Index is down 1%, VIX is down 30%?

No comments:

Post a Comment